EUR/USD - Risk Reversal points to bull trap

Omkar Godbole FXStreet Contributor

Following two consecutive Doji like candles with long lower shadows, the EUR/USD pair rallied to a high of 1.1848 on Friday. The gains were fuelled by a weaker-than-expected US inflation release and the resulting drop in the Fed rate hike odds.

Daily chart

Friday’s rally marks a sharp rebound from the rising trend line support. The technical pattern is encouraging for bulls, however, options market calls for caution.

One-month 25-delta risk reversal

The one-month 25-delta risk reversal has dipped into the negative territory over the last few days despite the rebound in the EUR/USD from the trend line support.
It indicates, the demand for Put options or downside bets has strengthened.
Hence, caution is advised as Friday’s gains could end up being a bull trap.

EUR/USD Technical Levels

The spot traded largely flat lined in Asia around 1.1830 levels. A break above 1.1848 [previous day’s high] would open doors for 1.1910 [recent high], above which a major hurdle is seen at 1.20 [psychological level].

On the downside, breach of support at 1.1799 [1-hour 200-MA] could yield a re-test of 1-hour 50-MA located at 1.1774 and 1-hour 100-MA located at 1.1769.

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bullish	Neutral	High
1H	Bullish	Neutral	Shrinking
4H	Bullish	Neutral	Expanding
1D	Slightly Bullish	Neutral	Shrinking
1W	Bullish	Overbought	High
Updated Aug 14, 03:15 GMT

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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